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Questions and Answers
What was true about the experiment involving volunteers served wine while lying inside an MRI machine?
Brain scans found people enjoyed the expensive wine more
People who use Stickk.com can designate payment to an organization they detest if they fail to reach their savings goal by a certain date.
True
For some people, using a commitment contract has been shown to be effective in reaching a savings goal by a certain date.
True
When given more retirement plan options, fewer employees are less likely to make a choice.
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The human tendency is for people to hand over money to a crook/con artist because of the fear of missing out on an investment opportunity.
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Behavioral economics assumes we're all rational consumers making logical choices based on the best financial information.
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People who see images of their future selves put less money into the retirement fund.
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Our brains are intoxicated by price — the more we think something costs, the better we like it.
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Mental accounting violates what economic principle?
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Any time you refuse to sell something for an amount that is more than you would pay for it, you are experiencing what?
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Study Notes
Experiment with Wine and MRI
- An experiment involved volunteers served wine via a tube while lying in an MRI machine.
- Brain scans indicated that participants enjoyed expensive wine more than cheaper options.
Commitment Contracts
- Stickk.com allows users to set commitment contracts where failure to meet savings goals results in payment to a disliked organization.
- Utilizing commitment contracts can effectively aid individuals in achieving their savings goals.
Retirement Plan Choices
- An increase in retirement plan options can lead to decision paralysis, resulting in fewer employees making a choice.
Fear of Missing Out
- People often succumb to financial scams due to the fear of missing out on investment opportunities, demonstrating a behavioral tendency.
Assumptions of Behavioral Economics
- Behavioral economics challenges the notion that all consumers are rational and consistently make logical choices based on optimal financial data.
Future Self Imagery
- Viewing images of one’s future self can lead to reduced contributions to retirement funds, contradicting the expectation that it would promote saving.
Influence of Price on Perception
- The perception of price significantly affects consumer preferences; higher perceived costs often lead to a greater appreciation of the item.
Mental Accounting
- The concept of mental accounting violates the economic principle that money is fungible, meaning it should be interchangeable regardless of its source.
Endowment Effect
- The endowment effect occurs when individuals refuse to sell an item for more than they would be willing to pay for it, reflecting an irrational attachment to ownership.
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Description
Explore key concepts in behavioral economics through different scenarios such as wine enjoyment, commitment contracts, and retirement planning. This quiz delves into the complexities of consumer decision-making and the impact of emotions on financial choices. Test your understanding of how behavioral insights can shape financial outcomes.
